Recently, someone asked me what leveraged trading is all about, so I’ll give everyone a straightforward explanation, along with an explanation of what liquidation means.

First, the basics. If Bitcoin is $50k each, and you have $50k, you can buy one—this is regular trading, nothing special. But leveraged trading is different. If you buy one Bitcoin with the same $50k, you only need to put in 10%, which is $5,000, and I’ll cover the remaining 90%. That’s tenfold leverage, sounds pretty cool, right?

But that $45,000 isn’t given to you for free; it’s borrowed, and you have to pay it back. If Bitcoin rises to $55k, a 10% increase, you sell and pay back the $45,000, leaving you with a net profit of $10k. That’s like doubling your $5,000 principal. That’s the attractive part of leverage.

The problem is, what if Bitcoin drops to $45,000? Just a 10% drop, but with tenfold leverage, your $5,000 is gone. At this point, you might want to gamble that it will bounce back and not sell. Is that possible? Of course not. You can wait with your own money, but the $45,000 I lent you is my money. Why should I keep supporting you? I have the right to sell your coins directly and take back my money.

A worse situation is if I sell slowly and Bitcoin drops to $44,000. After selling, not only do you lose your entire investment, but you also owe me $1,000. That $1,000 becomes your debt. This is the real meaning of liquidation—you not only lose your principal but also owe money to the exchange.

How to avoid liquidation? There’s only one way: add more funds. Deposit another $5,000 into your account, so your cash plus the value of Bitcoin again exceeds $45,000, and the exchange can relax.

Now, let me tell a darker story. There have been many fake domestic trading platforms, and unlike those scams that just fake data, these exchanges’ data are all real, but they can still trick investors into losing everything.

Suppose you’re trading a commodity with tenfold leverage, and the current price is $50k. The exchange knows all investors’ positions, account funds, leverage ratios—all under control.

On a dark, windless night, most retail investors are asleep. The exchange teams up with a few big players, ready with funds, and starts to target. Why choose midnight? Because investors are asleep and won’t notice the market changes or be able to add funds in time.

The big players aggressively go long, pushing the price from $50k to $55,000. Those with full positions and no cash—shorts—are hit with tenfold leverage and get liquidated instantly. They’re still sleeping, so their positions are automatically forced to close. It doesn’t take much money because most people are asleep, and a small amount can push the price higher. Plus, after being forced to close, the short sellers’ orders automatically turn into buy orders, helping the big players continue to push the price up.

As the price continues rising to $75k, all shorts with more than fivefold leverage get liquidated. Where does all that liquidation money go? If the big players are also using tenfold leverage, they can make a fourfold profit from closing positions at $75k after entering at $50,000.

Even more extreme, after pushing the price up, the big players can directly reverse their operations. Now they start aggressively shorting, smashing the price from $75k back down to $50,000. Since this rise was mostly manipulated by the big players themselves, with little follow-up trading, they add more funds and push the price down further, to $25k. Short investors with more than fivefold leverage get liquidated again. The big players buy back at the bottom, closing their positions and making another profit.

All these trades are real; the retail investors’ and big players’ liquidations are genuine. As long as there’s enough capital and they control the trading data—knowing where retail investors open positions, how big their positions are, their leverage, and when they’re inactive—they can precisely target and manipulate the market. Retail traders get liquidated whether they’re long or short, while the big players make huge profits.

That’s the real story of liquidation. Of course, I’m talking about these shady exchanges that operate without regulation. Legitimate markets wouldn’t have such practices.

So, if you want to get into this game, you must understand what liquidation means and how risky leveraged trading is. Don’t blindly trust any exchange, and don’t blindly believe anyone saying “this coin will definitely go up.” Doing your own research and making your own judgments is the safest way.